Jack Kemp and the Gold Standard

That’s what I hope to do by retiring now after more than 26 years crunching LBMC’s monthly economic and market forecasts. Stipulating of course that Joni Mitchell meant laughing with, not at (or cursing)— like many in these turbulent years. In this final issue of LBMC’s Economy Watch, I’ve compiled the recent summary of LBMC’s history and methods in Economy Watch and Market Watch, as a sort of coda.

Also as a thank-you from ‘M’ to those with and from whom I’ve been privileged to work and learn, starting with ‘L’ (Lewis E. Lehman), ‘B’ (Jeff Bell) and ‘C’ (Frank Cannon), our clients, and ‘R’—‘L’s’ great mentor Jacques Rueff, whose analysis of the dollar’s ‘reserve currency curse’ (July & Oct 14 EW) and Rueff’s Law of Unemployment (Sept & Dec 14 EW) we tried to implement. If I had to cite one contribution to economic forecasting, it’s using the ‘World Dollar Base’ to predict the commodity-led price inflations (Aug14 EW) that triggered recessions in 1991, 2001 and 2007. It’s LBMC’s strategy for stock- market investing in market forecasts (Aug 14 MW & chart below). I plan to keep applying such principles at the nonprofit Ethics and Public Policy Center (www.eppc.org/programs/economics) to fix public policy.

The Federal Reserve Bank of New York's always informative and frequently delightful blogger, Amy Farber, at Liberty Street Economics, provides us with a dip into monetary history... including refreshing her readers' memory as to the origin of the phrases "pieces of eight" and "two bits." Farber:

Historical Echoes: Aye, That Piece of Eight You Be Thinkin’ of Were a Precursor to Today’s Dollar

Amy Farber

Why do we associate pieces of eight with pirates? Perhaps it has to do with the role of the phrase “pieces of eight” in one of the greatest pirate adventures in literature, Treasure Island* (Robert Louis Stevenson, 1883). It’s Captain Flint the parrot, belonging to the pirate Long John Silver, who’s continually screaming “pieces of eight!” The last few sentences of the book read:

The bar silver and the arms still lie, for all that I know, where Flint buried them; and certainly they shall lie there for me. Oxen and wain-ropes would not bring me back again to that accursed island; and the worst dreams that ever I have are when I hear the surf booming about its coasts or start upright in bed with the sharp voice of Captain Flint still ringing in my ears: “Pieces of eight! Pieces of eight!”

The San Francisco Fed’s 1995 annual report has a section “A Brief History of Our Nation’s Paper Money.” In the “Did You Know?” section, we read:

During much of the 17th and 18th centuries, the Spanish Dollar coin served as the unofficial national currency of the American colonies. To make change the dollar was actually cut into eight pieces or “bits.” Thus came the terms “pieces of eight” from these early times and “two bits” from our time.

"Two bits" used to be used as a practical synonym for a quarter. The phrase mostly, now, is remembered for its inclusion in the comic couplet, "shave and a haircut, two bits." (Or as slang, reports the Urban Dictionary, for cheap or of bad quality.)

Recently at a Kemp Forum/American Principles In Action event held, at the Capitol, to observe the 30th anniversary of Jack Kemp's introduction of the Gold Standard Act of 1984, John Mueller, who was Kemp's staff economist, recalled how his father had been a coin collector.

In inventorying the collection it was discovered that the base metal coins in it had lost real value from their original purchase price.

But the old silver quarters had appreciated, in nominal value ... at least by a factor ten ... or more just based on the value of the silver.

Yesterday was the 30th anniversary of Republican Rep. Jack Kemp’s introduction of the Gold Standard Act of 1984—a bill that some regard as the last congressional push for sound money.

“Lower marginal tax rates and a proxy for the gold standard created 40 million jobs,” Jack Kemp Foundation President Jimmy Kemp said at a forum hosted in the U.S. Capitol. “We are here today to encourage people to take it and bring it to conclusion.”

The Jack Kemp Foundation, in association with American Principles in Action, hosted the event Friday to discuss Kemp’s gold standard legacy and to encourage a solution to Kemp’s “unfinished business” of supply-side economics. Kemp, who represented New York in Congress and ran for vice president, died in 2009.

The speakers of the forum included Dave Hoppe, Kemp’s chief-of-staff; John Mueller, the staff economist to Kemp; Ralph Benko, founder of the Prosperity Caucus; and Jeffrey Bell, the national co-chairman of Kemp for President as well as the Republican candidate for the New Jersey Senate race whose platform rests heavily on the gold standard.

The Heritage Foundation’s Norbert Michel attributed the Federal Reserve’s recent “aggressiveness” as a key reason for the resurfacing of the gold standard discussion.

Jack Kemp was one of very few transformational political leaders of the 20th century. He incontrovertibly was the political prime mover in raising the world’s wealth to $100 trillion (trillion with a t). As this writer elsewhere has observed:

"According to the World Bank, the world’s GDP in 1980 was around $11 trillion. Today it is around $60 trillion. The added $50 trillion-per-year capitalizes to over $100 trillion in new wealth… even when adjusted for inflation."

$100 trillion is a lot of money… even by Washington standards. Thanks to the work of Rep. Jack Kemp (R-N.Y.) and his tiny team, America was instrumental in bringing a billion people out of abject poverty into decent working affluence. Not incidentally, Kemp’s work created the conditions for the generation of nearly 40 million jobs, under Reagan and Clinton, in America. Abandoning the Kemp formula, America has stagnated.

Influential financial publisher and former presidential candidate Steve Forbes is out with a new warning that the U.S. faces an economic catastrophe due to the Federal Reserve's loose dollar policy, and returning to a strict “gold standard” is the only way to avoid disaster.

"[The Fed's] vastly misguided monetary policies are now setting the stage for a new economic and social catastrophe — one that could rival the financial crisis and horrors of the 1930s,” he wrote in the book co-authored by Elizabeth Ames.

Just like many financial conservatives have advised in the past, notably former Reps. Jack Kemp and Ron Paul, Forbes said that economic prosperity can come only if the dollar is linked to gold and not printed willy-nilly at inflated rates.

"The best way to achieve monetary stability: linking the dollar to gold,” he wrote in the book out today. “The Fed should have only two tasks: keeping the dollar fixed to gold and dealing quickly and decisively with panics,” he wrote, according to excerpts provided in advance to Secrets.